BILL ANALYSIS
AB 957
Page 1
CONCURRENCE IN SENATE AMENDMENTS
AB 957 (Galgiani)
As Amended August 17, 2009
2/3 vote. Urgency
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|ASSEMBLY: |77-0 |(May 26, 2009) |SENATE: |30-4 |(September 1, |
| | | | | |2009) |
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Original Committee Reference: B. & F.
SUMMARY : Enacts the Buyer's Choice Act, to prohibit a seller of
residential real property improved by four of fewer dwelling
units from directly or indirectly requiring a specific title
insurer or escrow agent as a condition to selling the property.
Specifically, this bill :
1)Specifies that a buyer is not prohibited from agreeing to
accept the services of a title insurer or escrow agent
recommended by the seller, provided that written notice of the
right to make an independent selection is first provided by
the seller to the buyer.
2)Provides a violation by a seller, as defined, shall be liable
to the buyer in an amount equal to three times all charges
made for the title insurance or escrow service. In addition,
any person in violation shall be deemed to have violated his
or her license law and shall be subject to discipline by his
or her licensing entity.
3)Specifies a transaction shall not be invalidated solely
because of the failure of any person to comply with any
provision of this act.
4)Defines "escrow service" as a service provided by a person
licensed pursuant to Division 6 of the Financial Code, or
exempt from licensing pursuant to Financial Code Section
17006.
5)Defines "seller" for purposes of this bill to mean a mortgagee
or beneficiary under deed of trust who acquired title to
residential real property improved by four or fewer dwelling
units at a foreclosure sale, including a trustee, agency,
officer, or other employee of any such mortgagee or
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beneficiary.
6)Defines "title insurance" as insurance offered by an insurer
admitted in this state to transact title insurance pursuant to
Chapter 1 of Part 6 of the Insurance Code.
7)Enacts a sunset date of January 1, 2015.
8)Contains an urgency clause, allowing this bill to take effect
immediately upon enactment.
9)Makes findings and declarations regarding the real estate
market.
The Senate amendments :
1)Provide that a buyer can agree to accept the services of a
title or escrow provider recommended by the seller, provided
that written notice of the right to make an independent
selection is first provided by the seller to the buyer.
2)Add an urgency clause.
3)Add findings and declarations regarding the real estate
market.
4)Add the definitions of "escrow service" and "title insurance."
5)Apply only to residential real property improved by four or
fewer dwelling units.
EXISTING FEDERAL LAW :
1)Authorizes federally-chartered financial institutions to
engage in the business of mortgage lending, brokering, and
servicing and governs the rules under which such activities
may be conducted under a wide variety of laws, including, but
not limited to, the Home Ownership and Equity Protection Act
(HOEPA), Real Estate Settlement Procedures Act (RESPA), Truth
in Lending Act (TILA), Home Mortgage Disclosure Act (HMDA),
and regulations that interpret those acts (most notably
Regulation C, which interprets the Home Mortgage Disclosure
Act and Regulation Z, which interprets the Truth in Lending
Act).
2)Enacts Section 9 of RESPA to prohibit a seller from requiring
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the home buyer to use a particular title insurance company,
either directly or indirectly, as a condition of sale. Buyers
may sue a seller who violates this provision for an amount
equal to three times all charges made for the title insurance.
3)Authorizes under Section 9 of RESPA that individuals have one
year to bring a private law suit to enforce violations.
Lawsuits may be brought in any federal district court in the
district in which the property is located or where the
violation is alleged to have occurred. U.S. Housing and Urban
Development, a State Attorney General or State Insurance
Commissioner may bring an injunctive action to enforce
violations within three years.
EXISTING STATE LAW specifies that the Department of Corporations
(DOC) has the authority to enforce licensees it finds to have
violated any provision of RESPA, as amended (12 U.S.C. Sec. 2601
et seq.), or its regulations. (Financial Code Section, 17425)
AS PASSED BY THE ASSEMBLY , this bill was substantially similar
to the version passed by the Senate.
FISCAL EFFECT : None
COMMENTS : The author believes, "Since the last major bout of
foreclosures during the downturn of the 1990's, a practice has
developed in the foreclosure market that is having significant
consequences to many groups, including home buyers. Banks and
the Federal Department Housing and Urban Development Department
(HUD) are increasingly requiring the use of specific service
providers when they are the seller of residential property,
regardless of who pays for the service. This practice is
illegal under federal laws and regulations. Assembly Bill 957
seeks to strengthen state law to further curtail this practice."
In addition, the sponsor, the Escrow Institute of California,
further states, "What we are witnessing in the REO marketplace
is anti-competitive monopoly where banks direct the flow of the
sale of foreclosure properties to pre-selected settlement
service providers regardless of service or cost, and if a
potential buyer does not agree to use these services providers
their purchase offer will not be submitted or if reviewed by the
lender will be denied."
Although, the intention of the bill may already be prohibited
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under federal law, the author and sponsor believe California
needs to further enforce that the action of banks
pre-determining title and escrow companies for buyers is
prohibited especially with the sale of REO properties. KCRA,
recently released a story in regards to banks forcing buyers to
use their escrow companies. This behavior restricts what should
be a healthy competitive environment and backs buyers into a
corner by forcing them to accept higher fees.
HUD has openly stated in the past, "The effectiveness of RESPA
could be enhanced by assuring that creative business structures
do not defeat the purposes of Sections 8 and 9 of RESPA, and by
providing the Secretary and State regulators with the necessary
tools to enforce the statute." AB 957 could help ensure further
enforcement. In addition HUD has written several informal
opinions explaining that all direct and indirect methods of
requiring the buyer to use the seller's selected title agent are
illegal. For example, a seller who gave the buyer a choice of
using one of three title agencies, and who charged a higher fee
if another agency was used, violates Section 9 of RESPA. A
clause in a purchase agreement that has the effect of forcing
the buyer to obtain and pay for a lender's title policy from a
specific title company or title agency is illegal. The seller
and the seller's real estate broker are liable to the buyer for
three times the cost of the title insurance policy each time
that a seller or the seller's real estate broker includes such a
clause in the purchase agreement.
Analysis Prepared by : Kathleen O'Malley / B. & F. / (916)
319-3081
FN: 0002189